Article: Monday, 15 January 2018
Companies that seek profit are often seen as immoral and harmful, even when they make positive contributions to society. ‘Why is this?’, researcher Amit Bhattacharjee of Rotterdam School of Management, Erasmus University, wanted to find out. He discovered that people overlook market mechanisms that stimulate companies to add value to society. Instead, they focus on the bad business practices they assume are necessary to make a profit. His research can help companies to communicate better about how they add value to society.
In pop culture, there are a lot of stereotypes associated with making profit, says researcher Bhattacharjee. “Remember ‘The Wolf of Wall Street’? A stockbroker is driven by selfish motives, which seems to go hand-in-hand with moral depravity and a willingness to harm others.”
Most of the negative stereotypes floating around about companies and profits seem to boil down to the notion that profit is a zero-sum game, he continues. Or in other words: if the company is turning a profit, then somebody else, or society at large, must be picking up the bill for this, in the form of environmental damage, underpaid workers, or overcharged consumers, for example.
This was echoed in the first two studies of the paper, which was co-authored with Jason Dana and Jonathan Baron. The results showed that the more profit a Fortune 500 company is thought to make, the more it is seen as harmful to society. And this effect extends to entire industries, the researchers found.
This in itself is interesting, says Bhattacharjee, because most experts agree that while markets are imperfect, the presence of competition means that companies that make the most profit tend to also contribute the most to society. In this study, the researchers wanted to find out why people are so suspicious about profit-seeking, even when it is shown that profitable firms often help advance society.
To find out what causes people to be so distrustful of profit-seeking companies, the researchers conducted more studies. They discovered that beliefs about the harmful effects of profit are rooted in the very motive of profit-seeking. Simply telling people that an organisation intends to make a profit makes them perceive its practices as producing more harmful outcomes, the results showed.
And this works the other way around too, he says: “We asked people to imagine themselves as a CEO of a company. Most of them believed that adopting worse business practices would improve the profit of their imaginary business. This suggests that people see a fundamental disconnect between what’s good for business and what’s good for society as a whole.”
So far, these results indicate that people really believe that making profit is a zero-sum affair that can only be achieved at the expense of others.
But in competitive markets, companies can only continue to make profit if they please consumers more than their competitors. And consumers increasingly demand sustainability and good labour practices. Even if companies have purely selfish intentions, they must meet these demands to continue earning profit.
So, companies who want to earn repeat business and care about their long term profit cannot blindly pursue short-term profit at all costs. “We noticed that the people in our study were really sensitive to that argument. After we explicitly reminded them about that consumers can make choices between competing firms, they became less negative about profit-seeking”, Bhattacharjee says.
The same mechanisms apply to a firm’s reputation. The researchers noticed: “Having a bad reputation obviously harms sales and profits, but we found that this is something that people may not normally consider. Once we reminded people that they can share reputational information and factor it into their choices, they –again- became less suspicious of profit-seeking.”
Finally, the researchers that found anti-profit beliefs also stem from people not realising that for companies, profit is not just a reward; it also provides them information about how to innovate and invest in the future. If people see lots of value in innovations, such as new vaccines or more efficient batteries that can store solar energy, they can vote with their wallets to let companies know to make more. When the researchers triggered respondents to consider this signal value of profit, their frame of profits became more positive.
Companies must be aware that the general public -their customer base- is suspicious of their profits. Even if profit-seeking motives can incentivise companies to create value for society, people usually overlook this possibility and assume that selfish company intentions necessarily lead to bad outcomes for society.
The good news for companies is that people do think company motives differ: some care about profit while others care about helping society. Demonstrating a willingness to look beyond short-term profits may not only make companies seem smarter or more farsighted, but also more virtuous, Bhattacharjee concludes.
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